It’s about time the IRS subjected all of these outfits to scrutiny. The agency’s inaction has served the purposes of donors and political organizations on both sides of the aisle, and contributed to the explosive infection of the electoral process by big money from individuals and corporations.
Nor is Congress innocent. The lawmakers have dodged their responsibility to make the rules crystal clear. On the rare occasions when the IRS has tried gingerly to impose regulatory order, members of Congress have forced the agency to back off. There should be a rule in Washington that if you give regulators deliberately vague guidelines, you’re not allowed to protest when they try to figure out where the lines are.
Thanks to ambiguity about what it means to be “primarily” concerned with “social welfare,” political activists have reaped a bonanza for years while the IRS ignored their chicanery. And once again, now that the agency has tried to regulate, the regulated parties have blown its efforts up into a “scandal.” It’s amusing to reflect that some politicians making hay over this are the same people who contend that we don’t need more regulations, we just need to enforce the ones we have. (Examples: gun control and banking regulation.) Here’s a case where the IRS is trying to enforce regulations that Congress enacted, and it’s still somehow doing the wrong thing.
Keep that in mind when you hear politicians — and they’re not exclusively Republicans — grandstanding about how the IRS actions are “chilling” or “un-American.” It turns out that none of the “targeted” groups actually was denied C4 status. Nevertheless, says Sheila Krumholz, director of the Center for Responsive Politics. “There’s a sense of discomfort that the IRS was doing much of anything.”
The IRS wasn’t actually doing much. The biggest C4s, including one founded by GOP operative Karl Rove and another run by ex-Obama campaign staffers, got their C4 status routinely. The little guys got questionnaires.
C4s are curious creatures in the tax code. They’re allowed to engage in lobbying, but not (“primarily”) in campaign activity. Their donors don’t get a tax deduction, but the organizations are tax-exempt. For example, they don’t have to pay taxes on income they earn by investing donated funds. But what makes C4s especially attractive to people who want to funnel money into politics is this: They don’t have to identify their donors.
Remember the mysterious $11-million donation to the campaign for California’s anti-union Proposition 32 last November? When the state Fair Political Practices Commission punctured its anonymity, it found not one, but two 501©4 organizations behind it. The FPPC, which is still investigating, has already called this a case of “campaign money laundering.”
As of September last year, the center found, $254 million, or 20 percent, of all outside spending came through C4s. The biggest C4 in the electoral arena was Crossroads GPS, an affiliate of American Crossroads, a campaign organization founded by Rove. The Obama camp’s C4 was known as Priorities USA.
The IRS was swamped by the wave. The number of groups seeking C4 status from the agency rose from 1,500 in 2010 to 3,400 last year. Meanwhile, the agency was being pulled in two directions. In February last year, seven Democratic senators complained that the IRS was too “permissive” with its rules, which judged a C4 not to be engaged “primarily” in electioneering as long as no more than 49% of its spending went to such activities. In August, 10 GOP senators warned the agency to deep-six any efforts to tighten the rules on C4s.